South Florida Multifamily 2018 Mid-Year Update
MULTIFAMILY MARKET UPDATE
MID-YEAR 2018 MARKET UPDATE
SOUTH FLORIDA MULTIFAMILY MARKET BULLISH. VACANCIES AT RECORD LOWS DESPITE NEW SUPPLY. In the first half of 2018, there were 133 multifamily sales totaling a little over $2 billion in the South Florida multifamily market. This is a 5% and 50% decrease from the first half of 2017 and 2016 respectively. Although sale activity slowed, it still represents the third highest level of activity ever recorded in the first half of any year. Sale activity was relatively evenly split between A (36%) B (34.9%) and C (29.1%) properties – albeit Miami-Dade and Broward were heavily focused in B and C sales, whereas Palm Beach was largely in A sales. We expect Class A sales to remain strong as new construction gets completed resulting in merchant developers looking to sell once properties are stabilized. Price per unit and price per square foot sales decreased slightly in the first half of the year but were at the second highest levels recorded (see graph 1). Finding deals was the biggest challenge in the market, particularly value-add opportunities. This is a natural progression, as many of these deals traded multiple times during this real estate cycle. As a result, investors with capital to deploy were finding themselves facing a dearth of for-sale assets to target in this space. In contrast, institutional deal activity, which in general is geared towards newer product, has more runway in the next few years because the construction pipeline for this asset class remains robust. 58 market-rate properties are currently under construction in South Florida with approximately 18,215 new units. To analyze Private Capital deal volume from a property perspective, we defined the primary targets for this group as market-rate properties that were built in 1980 or earlier. Private Capital multifamily investment in South Florida accounted for 20% to 30% of this space in recent years. The dollar sales volume of properties built in 1980 or earlier declined from a 2016 six-month high of $735 million to $494 million in 2018, a decrease of 33%. A slow-down in sales volume in this space has not affected price – the average sale year-to-date of 1980 or earlier product is $123,000 per unit, up from previous high of $120,000 in 2017. Many of these properties were prime “value-add” opportunities which are increasingly tougher to find, with more buyers than sellers in the market. RENTAL DEMAND In the first half of 2018, South Florida witnessed a net absorption of 6,466 units, meaning more units were absorbed than the 3,572 units that were completed. An increasing population, demographic shifts and higher single-family home pricing were contributing towards strong rental demand. In the past five years South Florida’s population increased by 403,000 (6.9%) and 331,350 new jobs were added. During the same period, 46,565 new apartment units were built. This means one unit has been built for every 8.7 net new residents. Over the next five years, South Florida is expected to see a positive net migration of 8.9% or 555,000 people. Using the same ratio, the region would need over 64,000 new rentals to keep pace with the population growth for the next five years. Currently, there was 18,215 units under construction at the end of the second quarter. Another way to consider demand is looking at the amount of new household formations - the number of new households created each year. Household formations in South Florida are expected to increase to over 50,000 each year in the next five years. Let’s conservatively assume 40,000 new households per year and 60% enter homeownership and 40% as renters (consistent with current homeownership rates) that represents 16,000 new renters per year in South Florida. The homeownership rate in South Florida is 63.4%, near a 30-year low. Since 2013, median single-family home prices increased 61.2%, 61.8% and 72.2% in Miami-Dade, Broward, and Palm Beach Counties respectively, making ownership even tougher and rental demand even stronger. The median home value in Miami-Dade is now over $338,000, meaning a renter who could afford a 10% down payment on a median-priced home in Miami-Dade would have a mortgage over $2,000 — $619 more than the average Miami-Dade rental.
Cushman & Wakefield MULTIFAMILY INVESTMENT SOUTH FLORIDA TEAM The MARKET LEADER in the sale, marketing & financing of multifamily properties and land development in SOUTH FLORIDA .
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